DWAC, the Trump Social-Media SPAC, Soars in GameStop-Like Frenzy

Shares of a blank-check company tied to Donald Trump’s online network surged again Friday, implying a valuation of several billion dollars for the new firm following a buying frenzy fueled by individual investors on social media.

Digital World Acquisition Corp. shares more than doubled to $94.20 on Friday after trading as high as $175. Trading in the stock was heavy, prompting a number of brief trading halts.

The shares rose from less than $10 to $45.50 Thursday after the firm announced a deal to combine with a newly formed media company backed by Mr. Trump that plans to launch a Twitter -like platform called Truth Social. The prices of warrants tied to the stock that give investors the right to buy more shares at specific prices in the future have also soared.

The stock’s ticker, DWAC, has been trending on several internet platforms over the past few days. Day traders on platforms like Reddit have posted photos of their quick fortunes, inspiring others to jump on board, some analysts said. Some posts also indicated that individuals wanted to buy the stock to support Mr. Trump’s political movement.

“This is the new hot meme stock,” said Matthew Tuttle, whose firm Tuttle Capital Management runs a few exchange-traded funds tied to special-purpose acquisition companies and the companies they take public. Meme stocks are those that become wildly popular among online traders for reasons other than their business prospects, as GameStop Corp. and others have this year.

Also called a blank-check firm, a SPAC such as Digital World is a shell company that raises money and lists publicly with the goal of merging with a private company such as Mr. Trump’s. The private firm then replaces the SPAC in the stock market. SPAC mergers have become popular alternatives to traditional initial public offerings and have allowed startups with scant records to list publicly.

The gains for Digital World are unprecedented even for SPACs, which are known for wild share-price swings and exploded in popularity early this year alongside meme stocks.

Among the roughly 115 SPACs that have announced mergers but not yet completed them, Digital World’s stock price is by far the highest, according to data provider SPAC Research. The next-best-performing SPAC in a similar position trades at about $14. Nearly all SPACs begin trading at $10.

The stock surge outpaces gains for companies that have closed SPAC deals and traded publicly for years. Altus Midstream Co. is the best-performing stock that went public via a blank-check firm in SPAC Research’s database and sits at about $70. Sports-betting firm DraftKings Inc., another top performer, trades around $45.

The current Digital World stock price implies a valuation for Mr. Trump’s startup media company in the billions of dollars, several times the announced valuation of $875 million, a figure that isn’t strictly comparable because it includes debt.

“It’s a level of speculation that I once thought unfathomable,” said Julian Klymochko, who manages a SPAC-focused fund at Accelerate Financial Technologies.

Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ

Other SPACs that have rocketed higher in the past have later fallen, hurting individual investors who piled in while company insiders are protected through special incentives.

The SPAC that took electric-vehicle maker Lucid Group Inc. public rose to nearly $60 amid rumors of the merger in February. After the deal was publicly announced, shares fell back around $25, where they trade today.

Mobile-gaming firm Skillz Inc. climbed above $40 early this year following the completion of its SPAC deal but has since fallen back to $10. Shares of space-tourism firm Virgin Galactic Holdings Inc. and several other electric-vehicle startups have also tumbled in recent months.

The sharp declines for companies popular among individual investors have prompted scrutiny among regulators and lawmakers about the SPAC structure and whether it disproportionately benefits insiders and professional investors.

Hedge funds that are large buyers of SPACs when they initially go public often notch outsize gains from moves like the one in the Digital World SPAC. They buy shares at the listing price of $10 or below that level after the shares begin trading publicly. If the stock like Digital World rises after a deal announcement, they are typically quick to sell to lock in a profit.

Even if the stock falls or trades flat, they are protected by the right to withdraw $10 a share plus a tiny bit of interest before SPAC deals are completed.

Such investor withdrawals have skyrocketed in recent months with shares of many SPACs sliding. Several companies that went public this way have struggled to meet the growth targets they made when going public, prompting skepticism among some investors. Such business projections aren’t allowed in traditional IPOs.

The Digital World SPAC is led by Patrick Orlando, a former derivatives trader at Deutsche Bank AG. One of the blank-check company team’s past SPAC deals, a roughly $7 billion deal with energy transportation solutions firm Giga Energy, was terminated in mid-September amid a share-price slump for many SPACs. The combination was announced in May.

Other SPACs have also terminated deals or reduced valuations after investors scrutinized the finances of the mergers.

So far, the Digital World SPAC hasn’t released many concrete financial details about Mr. Trump’s new business. The Digital World SPAC has about $290 million that the social-media venture could use to fund its growth, though investors have the right to pull money out at $10 a share before the deal gets completed. The current share price makes such withdrawals much less likely because investors would lose money by pulling their money out.

In the coming months, the SPAC will have to publicly release an S-4 regulatory filing with the Securities and Exchange Commission detailing the merger. The filing will include the financial information and ownership structure of Mr. Trump’s new venture, Trump Media & Technology Group. Regulators will then review the documents, before an official shareholder vote on the deal. At that time, Digital World SPAC investors could pull their money out.

If the merger is approved, Trump Media & Technology Group will replace Digital World in the stock market and begin trading under that name.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com

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